Today's selection -- from The Economists' Hour by Binyamin Appelbaum. Binyamin Appelbaum's powerful new book The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society is a lively, colorful, and highly insightful contemporary economic history. The arc of the book follows the seemingly unstoppable emergence of the free market theories of Milton Friedman all the way through to the discrediting of those theories in the wake of the global crisis of 2008. The full panorama of personalities is here, from Kahn, Burns, Volcker and Greenspan to Carter, Reagan, Bush, Clinton and Obama, with a smattering of personalities such as George Schultz, Wendy and Phil Gramm, and Marty Feldstein along the way. The following is a brief excerpt on financial derivatives from the book. The economic establishment had protected derivatives from regulation in the late 1990s, but that came back to haunt the global economy in the crisis when a form of derivatives called credit default swaps added billions in losses:For more on Brookesly Born and the Washington Establishment:
"Shortly after Brooksley Born became the head of the Commodity Futures Trading Corporation (responsible for regulating commodities, futures, and other derivatives) in August 1996, taking the job once held by Wendy Gramm, Born was invited to lunch by Alan Greenspan, who explained his view that markets would police fraud. Born was bemused: as a lawyer, she often had represented the victims of financial frauds. Her clients had included victims of the legendary effort by the Hunt brothers, a pair of Texas oil heirs, to corner the market in silver in the late 1970s. She knew the Hunts had not been stopped by the market; they had been stopped by the CFTC.
"The market in credit derivatives soon caught Born's attention. She was struck by the industry's adamant opposition to the most basics forms of regulation, like record keeping and reporting. 'That puzzled me,' she said. 'What was it that was in this market that had to be hidden? Why did it have to be a completely dark market? So it made me very suspicious and troubled.' In early 1998, her staff began to prepare a tentative first step toward regulation, a request for public comment. Before the industry even had a chance to object, however, the Clinton administration tried to shut down Born's plan. According to the Washington Post, Larry Summers, then a deputy to Treasury Secretary Robert Rubin, called Born and told her, 'I have thirteen bankers in my office and they say if you go forward with this you will cause the worst financial crisis since World War II.' That April, Born was summoned to a meeting with Rubin, Greenspan, and Arthur Levitt, the chairman of the Securities and Exchange Commission. The men took turns telling her to drop the issue.....MORE
The Essential Larry Summers: How He and Alan Greenspan Laid the Groundwork for the Financial Crisis and Larry Lost $1.8 Billion for Harvard
Today In Irony: Robert Rubin Reviews A History Of the Fed (yes the same fed that rescued citi)
Mr. Summers (right) went on to be President Obama's Treasury Secretary, Mr. Rubin, (left) who had been President Clinton's Treasury Secretary and became an advisor to President Obama's 2008 campaign and subsequent administration. He worked for Citigroup for a year, pocketed $126 mil. from Citi and resigned after that year, when the Feds bailed the bank out . Ayn Rand acolyte Mr. Greenspan still spouts off from time to time.
Brookesly Borne was run out of government by the powers that be.
In 2009 she received the John F. Kennedy Library's Profiles in Courage Award.
See also: Speaking of Robert Rubin: "The Optimal Design of Ponzi Schemes in Finite Economies"
And on the Commodity Futures Modernization Act, a 2007 post:
EXCESSIVE SPECULATION IN THE NATURAL GAS MARKET
Magical Markets, Enron and GE and a New Word
"Speaking of Enron, does anyone know if Congress has repealed the Enron exemption in the Commodity Futures Modernization Act of 2000, first enacted by Wendy Gramm (Republican) as a CFTC rule in 1993 and signed into law by Bill Clinton (Democrat) during his last month in office?The answer is NO, not repealed yet!...
I bet General Electric knows."
...A good primer on trading and natural gas From the U.S. Senate Permanent Subcommittee on Investigations (JUNE 25 & JULY 9, 2007 HEARINGS) page 8 :...
